Business Activity in U.S. Expands at Slower Pace Than Estimated, ISM Says
Business Activity in U.S. Expanded at Slower Pace
Andrew Harrer/Bloomberg
A slowdown in manufacturing will restrain an economy already burdened by unemployment near a 26-year high, slackening consumer spending and plunging home sales.
A slowdown in manufacturing will restrain an economy already burdened by unemployment near a 26-year high, slackening consumer spending and plunging home sales. Photographer: Andrew Harrer/Bloomberg
Aug. 31 (Bloomberg) -- Home prices in 20 U.S. cities rose more than forecast in June from a year earlier, reflecting the influence of a government tax incentive and a sign the market was stabilizing before sales plunged in July. The S&P/Case-Shiller index of property values increased 4.2 percent from June 2009, the group said today in New York. Bloomberg's Betty Liu and Michael McKee report. (Source: Bloomberg)
Business activity in the U.S. expanded in August at the slowest rate this year, a private survey showed, adding to evidence the recovery is cooling.
The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 56.7 this month, the lowest since November, from 62.3 in July. Figures greater than 50 signal expansion.
A slowdown in manufacturing will restrain an economy already burdened by unemployment near a 26-year high, slackening consumer spending and plunging home sales. Waning demand and concern over the economic outlook are causing companies such as Intel Corp. to cut forecasts.
“We look for an abatement of the momentum that we’ve been seeing in manufacturing,” said John Herrmann, a senior fixed- income strategist at State Street Global Markets LLC in Boston, who forecast the barometer would fall to 56.9. “The inventory replenishment cycle is starting to ease back a little bit.”
Economists forecast the gauge would fall to 57, according to the median of 55 survey projections. Estimates ranged from 53 to 60.
Another report showed consumer confidence rose more than forecast in August, a sign the biggest part of the economy may avoid a slowdown that would derail the recovery.
Confidence Improves
The Conference Board’s confidence index climbed to 53.5 from a five-month low of 51 in July, figures from the New York-based private research group showed. The median forecast of economists in a Bloomberg News survey was for a reading of 50.7.
Stocks rose, erasing earlier losses, after the consumer confidence report eased concern the world’s largest economy was dipping back into a recession. The Standard & Poor’s 500 Index climbed 0.3 percent to 1,051.66 at 10:29 a.m. in New York. Treasury securities rose, sending the yield on the 10-year note down to 2.50 percent from 2.53 percent late yesterday.
Another report today showed home prices in 20 U.S. cities rose more than forecast in June from a year earlier, reflecting the influence of a government tax incentive and a sign the market was stabilizing before sales plunged in July.
The S&P/Case-Shiller index of property values increased 4.2 percent from June 2009, the group said in New York. The median estimate of economists surveyed by Bloomberg News called for a 3.5 percent advance.
Chicago Breakdown
The Chicago-ISM’s employment measure fell to 55.5 from 56.6 in July, and the production gauge decreased to 57.6 from 65.
The index of new orders fell to 55 from 64.6 a month earlier. The gauge of backlogs decreased to 56.2 from 57.6. Inventories dropped to 46.5 from 50.8.
Economists watch the Chicago index and other regional manufacturing reports for an early reading on the outlook nationally. The Chicago group says its membership includes both manufacturers and service providers, making the gauge a measure of overall growth. Its members have operations across the U.S. and abroad.
Other regional factory reports showed the manufacturing expansion weakening. The Federal Reserve Bank of Philadelphia’s general economic index dropped into negative territory this month for the first time in a year, while the New York Fed’s gauge rose less than forecast from a July reading that was the weakest of 2010.
Manufacturing Nationally
The ISM’s monthly national factory index, due tomorrow, may drop to 52.8 in August from 55.5 the prior month, according to the median forecast of economists surveyed by Bloomberg. That would be the lowest reading since September 2009, and below the 53.9 average in the five years leading up to December 2007, the start of the worst recession since the 1930s.
Fed Chairman Ben S. Bernanke last week said the central bank “will do all that it can” to ensure a continuation of the economic recovery and outlined steps it might take if growth slows.
“Investment in equipment and software will almost certainly increase more slowly over the remainder of this year, though it should continue to advance at a solid pace,” Bernanke said.
Intel last week cut its third-quarter revenue projection to $11 billion, “plus or minus $200 million,” from the previously forecast $11.2 billion to $12 billion. The world’s biggest chipmaker cited weaker-than-expected consumer demand for personal computers in mature markets as the reason for the adjustment.
Some U.S. manufacturers continue to fare better than companies in industries such as retail and homebuilding. Caterpillar Inc., the Peoria, Illinois-based maker of construction and mining equipment, may add as many as 9,000 workers worldwide this year, Chief Executive Officer Doug Oberhelman said at a meeting with analysts Aug. 19.
“The facts aren’t bad in our business,” Oberhelman said. If the economy does tip back into a recession, he said, “we’ll do just like we did in 2009 and come through it smelling like a rose.”
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net.
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